AB InBev Raises Tab for SABMiller

The new offer values the U.K. target at $103.3 billion and comes as the Belgian suitor bows to pressure from activist investors.
By Renee Cordes ,

Bowing to pressure from activist investors, Budweiser maker Anheuser-Busch InBev (BUD) - Get Report has sweetened its offer for SABMiller (SBMRY) in a new cash-and-share offer valuing the British target at £79 billion ($103.3 billion) compared with the £73 billion agreed last November.

The Leuven, Belgium-based buyer said it will offer SABMiller investors 4,500 pence a share in cash, 100 pence more than the previous offer.

The new cash offer is 53% above the target's undisturbed share price.

AB InBev also raised the cash amount for shareholders who opt for a partial share alternative, which applies mainly to the 41.6% of shares held by SABMiller's two largest shareholders, tobacco giant Altria Group Inc. (MO) and the Santo Domingo family's Bevco Co. Ltd.

Under the revised offer unveiled on Tuesday, shareholders who choose to be paid in cash and stocks will get 4,655.80 pence in cash for each SABMiller share held rather than the 3,778.80 pence a share offered in November, and 0.483969 restricted shares as before.

"AB InBev confirms that this offer is final and that it will not further increase the cash consideration or the cash element or the exchange ratio of the partial share alternative," it said.

AB InBev shares gained some traction in Brussels Tuesday morning, adding 0.3% to €115.10, for a market valuation of around €185.35 billion ($204.9 billion). SABMiller shares slipped 0.5% in London to 4,416.50 pence, paring gains after rising earlier in the morning and putting its market capitalization at around around £72.9 billion.

Analyst Wim Hoste of KBC Securites in Brussels said while it's not clear whether AB INBev's new offer will be enough to convince investors, he believes it will be accepted, taking into account that the offer represents a full value with a price-earnings multiple of slightly over 30.

The analyst reiterated his hold rating on AB InBev shares, with a price target of €110 a share.

The buyer had been under pressure from at least two activist funds to either tweak the structure of its offer or to raise the tab, largely to compensate for the fall of the British currency against the U.S. dollar and the euro since last month's Brexit referendum for the U.K. to leave the EU.

The Children's Investment Fund, an activist fund managed by Chris Hohn, disclosed last week that it had taken a position of less than 1% in SABMiller. And earlier in the month regulatory filings showed that U.S. activist fund Elliott Capital Advisers had snapped up a 1.3% stake in SABMiller through derivatives purchases. The same day, Elliott disclosed a 0.0473% short position in AB InBev, reflecting a bet on the brewer's shares falling.

SABMiller put out a statement Tuesday taking note of AB InBev's revised offer.

"The board will continue to consult with shareholders and will meet in due course formally to review, having regard to all facts and circumstances, the revised offer and a further announcement will be made thereafter," it added.

SABMiller also disclosed that it had hired Centerview Partners last week as an additional financial adviser.

SABMiller also confirmed that its chairman, Jan du Plessis, had a "conversation" with his counterpart at AB InBev about AB InBev's offer "in light of recent exchange rate volatility and market movements." But it added that there was no discussion or agreement about the terms of the revised offer announced today.

SABMiller had initially played hard to get, rejecting the first three informal offers until signing up to a formal offer last November. AB InBev said last week it's still targeting a closing in the second half of this year, after securing antitrust approval from the U.S. Department of Justice.

The agreement with the DOJ includes a pledge to sell SABMiller's 58%, stake in Chicago-based Molson Coors LLC to joint venture partner Molson Coors Brewing Co. (TAP) - Get Report , a deal AB InBev announced already last November at the time of the SABMiller agreement as part of a pre-emptive strategy to stave off antitrust turbulence.

AB InBev also agreed not to terminate any agreements with wholesalers following the combination with SABMiller.

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